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Enforcing Taxes on Cryptocurrencies

Author

Listed:
  • Hjalte Fejerskov Boas

    (Department of Economics, University of Copenhagen)

  • Mona Barake

    (Skatteforsk, NMBU)

Abstract

Cryptocurrencies pose substantial challenges to tax enforcement due to their anonymous and decentralized properties, undermining conventional regulatory practices. We study the impact of an ambitious new enforcement initiative aimed at addressing these challenges: domestic third-party reporting of crypto income. We estimate tax compliance and behavioral responses to this new policy by combining unique Danish microdata from domestic crypto platforms, administrative tax records, and cross-border bank transfers. Despite the introduction of domestic third-party reporting, over 90% of crypto investors do not declare crypto income. Moreover, we identify a significant and persistent evasion response to the policy as investors shift trading activity from domestic platforms, subject to third-party reporting, to foreign platforms outside regulatory reach. Our findings underscore the limits of domestic enforcement strategies in addressing tax evasion for decentralized, borderless assets like cryptocurrencies, highlighting the need for international coordination.

Suggested Citation

  • Hjalte Fejerskov Boas & Mona Barake, 2024. "Enforcing Taxes on Cryptocurrencies," CEBI working paper series 24-21, University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI).
    • Handle: RePEc:kud:kucebi:2421
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    File URL: https://www.econ.ku.dk/cebi/publikationer/working-papers/CEBI_WP_21-24.pdf
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    More about this item

    Keywords

    Cryptocurrencies; Tax compliance; Tax enforcement;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • G5 - Financial Economics - - Household Finance

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